Russia Cuts Rates, Signals Additional Reduction

Russia's central bank decided to slash its key interest rate again, and hinted more easing in the coming months as slowdown in inflation is forecast to continue in the first half of the year.

The Board of Directors of Bank of Russia decided to trim the key rate by 25 basis points to 7.50 percent from 7.75 percent.

The bank had lowered the rate by 50 basis points in December, which was the sixth reduction in 2017.

Annual inflation is much less likely to exceed 4 percent this year, the Bank of Russia said. In this environment, the key rate will be reduced steadily and the transition from moderately tight to neutral monetary policy may be completed in 2018, the bank added.

The bank noted that the balance of inflationary and economic risks has shifted slightly towards the risks to economic growth, and the uncertainty over the situation in global financial markets has increased.

Inflation is expected to hold close to 4 percent in 2019. In the medium-term, the risks of inflation's upward deviation from 4 percent still prevail over deviation below 4 percent, the bank said.

The overall tone of the statement was extremely dovish by the standards of the Russian central bank, William Jackson, an economist at Capital Economics, said.

Jackson expects the policy rate to be lowered to 6.00 percent by the end of the year, which was lower than the markets are pricing in.

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